The Southland median home price increases 5.3% from a year earlier, climbing above $300,000 for the first time in two years.

A key gauge of Southern California home prices is on the rise because of a significant drop in foreclosed properties on the market and increased sales in more expensive coastal areas.

The Southland's median home price was up 5.3% in June from a year earlier, hitting $300,000 for the first time in two years, real estate firm DataQuick reported Tuesday. The median is the point at which half the homes sold for more and half for less. June sales rose 7.5% compared with a year earlier, another sign of increased strength in the housing market.

Helping drive the region's home price gain was a dwindling foreclosure market.

Foreclosures made up about 1 in 4 sales last month, compared with 1 in 3 in June 2011. Last month's foreclosure figure was the lowest since December 2007, at just 24.5% of all resale homes, DataQuick said. Foreclosures tend to concentrate in cheaper, less desirable neighborhoods, and they also sell at a discount, dragging down overall prices.

The improving median price, which rose 1.7% from May for a fifth consecutive monthly gain, "has a lot to do with changes in the types of homes selling, rather than across-the-board price appreciation," DataQuick President John Walsh said. "Fewer of the homes selling now are foreclosures, while more are nice houses in mid- to higher-end neighborhoods."

The decline in foreclosures comes as federal and state officials increase scrutiny of home repossession practices by banks and other companies. Many real estate experts said more declines are likely given that fewer California borrowers are falling behind on their mortgages and banks are looking for other ways to deal with their inventories of troubled properties.

"We are seeing a dramatic drop in the number of foreclosures, and we are seeing a stabilization in median prices," said Phil Jones, the owner of Coldwell Banker Coastal Alliance in Long Beach. But "we are a market starved for inventory, and the lenders and their initiatives are further exacerbating that problem."

A report last week by ForeclosureRadar, which specializes in tracking foreclosures in Western states, showed that foreclosure starts in California were essentially flat in June, down 0.9% from the previous month and off 3.1% from June 2011. Numbers from Equifax andMoody's Analytics show that the percentage of California borrowers who were at least 120 days behind on their mortgages was 2.9% at the end of the second quarter, down from 4% a year earlier.

Sean O'Toole, founder of ForeclosureRadar, said that the sharp reduction in foreclosed homes may begin to slow sales.

"Nine months from now we are going to have half as much inventory of homes for sale because they have slowed down the foreclosure process so much," he said. "We have this major anti-foreclosure rhetoric coming out of the government, and it works really well, because slowing down foreclosure doesn't hurt the banks."

California has been able to process foreclosures faster than other states because of its streamlined system, which doesn't require a lender to go to court to take back a home. Although new foreclosure figures may vary from month to month, many experts see a big wave of foreclosures as increasingly unlikely.

Experts also say banks may begin turning more often to other options for troubled borrowers such as home loan modifications or short sales. Federal and state officials have placed increased scrutiny on bank foreclosure practices and tougher requirements on banks this year.

The government is also poised to begin selling large pools of foreclosed homes to major buyers such as Wall Street hedge funds, which have agreed to turn them into rental units for several years, taking even more inventory off the market.

"We have seen as well, very, very healthy interest in portfolios of those properties by institutional buyers," said Stuart Gabriel, director of UCLA's Ziman Center for Real Estate.

Some local officials are investigating unorthodox ways to address the foreclosure issue. San Bernardino County and the cities of Ontario and Fontana are exploring using eminent domain as a way of seizing homes with troubled mortgages. Los Angeles city officials on Monday filed a civil suit against US Bank, accusing it of neglecting vacant, foreclosed homes in its possession throughout the city.

Rock-bottom interest rates and cheap prices have helped drive buyers back to housing, and now a lack of home inventory has helped fuel bidding wars. Hoping to benefit from this new environment are home builders, who are increasingly confident about the housing recovery.

An index of confidence from the National Assn. of Home Builders and Wells Fargo & Co. climbed six points this month, its biggest gain since September 2002. The index is now at 35, its highest level since March 2007. Confidence in every region of the country is up, with sentiment best in the West. But because the national gauge is still below 50, more respondents than not said the situation is poor.

The signs, though, seem to be good. A measure of single-family home purchases is at a five-year peak. Buyer traffic is also the strongest it's been in five years, as are indicators for sales over the next six months.

"This is greater evidence that the housing market has turned the corner as more buyers perceive the benefits of purchasing a newly built home while interest rates and prices are so favorable," Barry Rutenberg, chairman of the home builders association, said in a statement.

But the group's chief economist, David Crowe, cautioned that housing is "still in a fragile stage of recovery" and faces challenges such as "overly tight lending conditions, poor appraisals and the flow of distressed properties onto the market."